Saturday, January 31, 2009

IN MY VIEW: Failure to Pay Taxes Should Eliminate Daschle from Consideration for HHS Secretary

According to an article in the Washington Post, former Senator Thomas A. Daschle - who has been nominated by President Obama to be the Secretary of the Department of Health and Human Services (DHHS) - failed to pay more than $128,000 in taxes over three years.

According to the article: "Thomas A. Daschle, nominated to be secretary of the Department of Health and Human Services, did not pay more than $128,000 in taxes over three years, a revelation that poses a potential obstacle to his Senate confirmation. The back taxes, along with $12,000 in interest and penalties, involved unreported consulting fees, questionable charitable contributions, and a car and driver provided by a private equity firm run by entrepreneur and longtime Democratic Party donor Leo J. Hindery Jr., according to a confidential draft report prepared by Senate Finance Committee staff. A spokeswoman for Daschle confirmed last night that he recently paid back taxes in excess of $100,000. She said that Daschle, a former Senate majority leader, and his accountant discovered the error regarding the luxury car service and reported it to the committee after his vetting was completed."

Also according to the article: "Backus, Daschle's spokeswoman, said Daschle "naively" believed the car service was "nothing more than a generous offer from a friend. Last June, Daschle "mentioned the use of the car" to his accountant and asked whether the service could be construed as a reportable gift or payment, Backus said. The accountant intended to correct the error in Daschle's 2008 tax filing, she said. Daschle's "failure to recognize this as an issue and to discuss it with his accountant earlier is something he regrets and for which he takes full responsibility," she said. According to the Senate committee, Daschle used the car 80 percent of the time for personal purposes. That service was worth more than $255,000 in unreported income, according to the committee report. Under tax law, not reporting income -- including free services such as air travel or a car service -- can be a crime. But such lapses must be "willful and intentional" to be prosecuted, according to a tax expert."

The appointment of the next secretary of the Health and Human Services Department is critical to tobacco control issues because the Department heads many federal agencies that deal with tobacco - including the Office of the Surgeon General, the Centers for Disease Control and Prevention, and the NIH - and because if the proposed FDA tobacco legislation is enacted, the head of the DHHS will play a key role in implementing this legislation.

The Rest of the Story

If the facts of this article are true, then I think that Daschle should be eliminated from consideration immediately. These allegations, taken as true, mean that Daschle knowingly misled the Internal Revenue Service for at least seven months and "intentionally" failed to pay taxes he owed for this seven month period.

Based on the information reported in the article, Daschle knew in June 2008 that he had made an error in his 2007 return as he failed to report the car service. But as of early January 2009, he had made no report of this mistake to the Internal Revenue Service. Daschle's spokesperson's claim that he intended to correct the error in his 2008 tax filing is damning, because it indicates that he knew his tax return was in error, but failed to correct it for this seven month period. Once finding the mistake, it was Daschle's responsibility to report the error to the IRS immediately and to pay the back taxes and any penalities.

The magnitude of the reported error is huge. The amount that Daschle owed in back taxes is higher than the entire annual income for 85% of the United States population. This is no small error, and one which clearly should have been reported as soon as it was discovered.

Also, given the magnitude of the tax liability on this income, it is inexcusable that Daschle failed to make a definitive and correct determination of the liability at the time he filed his 2007 return. This is not the type of thing that you ask your accountant about two months after you file your tax return. With implications of tax liability in the arena of six figures, you ask your accountant about it in April, not June. And if you do ask your accountant in June, you pay those taxes in June, rather than waiting for the problem to be caught in January of the following year when you come up for a nomination.

The article states that: "Daschle's 'failure to recognize this as an issue and to discuss it with his accountant earlier is something he regrets and for which he takes full responsibility.'" Baloney. If Daschle were to take full responsibility for the error, he would withdraw his name from consideration for the position of secretary of DHHS. That would be taking full responsibility for his actions. The rest of the population does not have the luxury of failing to pay over $100,000 in taxes and not having to suffer the consequences for it.

To add to Daschle's woes, the New York Timesreports today that Daschle has received "more than $300,000 in income from health-related companies that he might regulate as secretary." That alone should disqualify him from the position.

Importantly, the New York Times article also confirms that Daschle was aware of his failure to report the taxes last June, but did not report the error to the IRS until just prior to his confirmation hearing in the Senate Health, Education, Labor, & Pensions Committee.

The rest of the story is that Daschle is in no position to be confirmed as secretary of DHHS. He should have pulled himself out of the running, but short of that, the Senate should send him packing. It will be no skin off his back. After all, he has his own car and driver to chauffeur him back home. And he doesn't need to report the income for it because he'd never face another confirmation hearing.

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About Me

Dr. Siegel is a Professor in the Department of Community Health Sciences, Boston University School of Public Health. He has 25 years of experience in the field of tobacco control. He previously spent two years working at the Office on Smoking and Health at CDC, where he conducted research on secondhand smoke and cigarette advertising. He has published nearly 70 papers related to tobacco. He testified in the landmark Engle lawsuit against the tobacco companies, which resulted in an unprecedented $145 billion verdict against the industry. He teaches social and behavioral sciences, mass communication and public health, and public health advocacy in the Masters of Public Health program.